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Accounting and Auditing Highlights week ending July 14, 2017

ACCOUNTING HIGHLIGHTS:

CONSTRUCTION INDUSTRY

July 11: Potential accounting
rule changes to debt classification could result in more debt being determined
as current, possibly boosting costs and creating operational issues for the
construction industry, according to discussions of the Financial Accounting
Standards Board (FASB) and the Private Company Council. FASB earlier this year
proposed simpler, less costly rules for determining whether to classify debt as
short or long term on the balance sheet.

ACCOUNTING STANDARDS

July 12: State and local governments
should disclose bank loans and direct placements separately from other debt,
the Governmental Accounting Standards Board proposed. Investors have expressed concern about the potential
risk that bank loans, other forms of direct borrowings and private placements
can pose to municipal borrowers. GASB proposal would require municipalities to
disclose information regarding direct borrowings and direct placements in a
separate note in their financial statements.

DISCLOSURE

July 12: The Securities and Exchange Commission is
considering new disclosure measures that would improve on the information
provided to investors and could ease reporting burdens for companies, suggested
Chairman Jay Clayton. In a speech at the Economic Club of New York, Clayton
said that the commission, lawmakers and other regulators have “slowly but
significantly expanded the scope of required disclosures beyond the core
concept of materiality.”

PRIVATE COMPANY REPORTING

July 12: Private company reliance on cloud systems
to store data, rather than buying internal software systems themselves, will
continue to grow, which will probably require greater accounting clarity on how
to record upfront cloud service implementation costs. Rapid technological
changes are the forces driving more companies—including small community
banks—toward cloud systems despite substantial set-up fees.

CLIMATE CHANGE

July 12: Eleven major banks including Barclays Plc,
Citigroup Inc. and UBS AG said they'll seek ways to address the financial risks
of global warming, after Bank of England Governor Mark Carney urged investors
to act on the threat.

DISCLOSURE

July 13: The nation's largest
pension funds and other institutional investors want the Securities and
Exchange Commission to make listed companies provide more information on their
“human capital.” Improved transparency on issues such as workforce diversity,
pay practices and corporate culture could help investors see which companies
carry a competitive advantage and which ones face reputational or legal risks.
But “human capital is nearly invisible in the commission's disclosure rules,”
the group of investors with more than $2.8 trillion in assets said
in a recent petition asking the SEC for a new reporting rule.

FINANCIAL INSTRUMENTS

July 13: Companies that issue financial instruments
with characteristics of both equities and liabilities will have protection
against market-price falls, FASB said. The FASB published amended rules July 13
applying to instruments with “down round” features. These are assets in which a
convertible instrument or warrant calls for the strike price to adjust downward
based on the pricing of future equity offerings. The new rules will eliminate
an earnings impact for stand-alone warrants that include down round features.

CREDIT LOSSES

July 14: Smaller credit unions
want the FASB to provide them with relief on the amount and complexity of
disclosures and with more implementation guidance on upcoming rules for
reporting losses. Credit unions say current disclosure requirements for
credit-loss rules are already lengthy and costly. They fear the new rules might
add more burdens.

FINANCIAL INSTITUTIONS

July 17: The House Appropriations
Committee approved a spending bill that would curb the Consumer Financial
Protection Bureau's authority and repeal Volcker Rule limitations on proprietary
trading. The spending bill to fund the Securities and Exchange Commission and
other financial regulators also includes several dozen policy provisions from
the Financial Choice Act, House Republicans’ signature Dodd-Frank Act rollback
legislation.

DISCLOSURES

July 19: U.S. accounting rule
makers are studying a request by 16 House members for U.S. multinational
companies to publicly disclose “meaningful country-by-country” information on
foreign and domestic earnings, assets, numbers of employees and taxes paid year
by year. The FASB, which writes U.S. accounting rules, has proposed audited
disclosure requirements that would require financial reporting on income and
income tax expense to be broken down between foreign and U.S. operations.

TREASURY DEPARTMENT

July 20: President Donald Trump's
choice for Treasury assistant secretary for tax policy, David J. Katter, said
he regrets not doing more to speak out against Ernst & Young LLP's tax
shelter practices while he was at the firm. In 2013, the accounting firm
admitted wrongful conduct by some of its partners and employees in connection
with the firm's participation in promoting abusive tax shelters used by clients
in an effort to defer, reduce, or eliminate tax liabilities.

INTERNATIONAL
ACCOUNTING HIGHLIGHTS:

INTERNATIONAL DEVELOPMENTS

July 11: Russia has
amended international financial reporting standards to clarify that asset
transfers into or out of investment properties should be made only when the use
of a property has changed. Russia also amended International Financial
Reporting Interpretations Committee 22, which clarifies the accounting for
transactions that include the receipt or payment of advance consideration in a
foreign currency.

July 13: European Banking
Authority's (EBA) estimate for increases in bank provisions to cover potential
loan losses under IFRS 9 accounting standard is lower than earlier estimated. EBA
releases a second assessment of IFRS 9 accounting standards that will require banks to cover
potential losses as soon as a loan is made. EBA study is based on data from about
50 institutions across Europe.

INTERNATIONAL STANDARDS

July 18: The pending
international accounting standard on insurance contracts will make financial
reporting among insurers easier to decipher, investors and other analysts told
the International Accounting Standards Board (IASB). International Financial
Reporting Standard 17: Insurance Contracts has gained widespread support from
investors and analysts, staff said at a meeting in London.

FINANCIAL INSTRUMENTS

July 19: Banks and other entities
that manage financial assets containing certain prepayment options could find
it easier to implement an international financial reporting standard on
financial instruments. The International Accounting Standards Board July 19
gave staff the go-ahead to draft tightly-drawn amendments to IFRS 9: Financial Instruments.

INTERNATIONAL STANDARDS

July 19: German insurer Munich Re
has already started gearing up to put into practice the international financial
reporting standard on insurance contracts, the company told Bloomberg BNA,
coming on the heels of an international financial stability advisory group
urging intensified preparation for the rule. “Munich Re is currently preparing
for the implementation of IFRS 17,” the company said in a July 18 email response to
questions, and is assessing “its impacts on the overall accounting, actuarial
and IT systems as well as any business implications.”

INTERNATIONAL DEVELOPMENTS

July 20: Russian authorities have
revised the country's accountancy and consolidated financial reporting laws to
amend provisions that govern regulations adopted by the Russian Central Bank,
as well as the reporting period for the purposes of consolidated financial
reporting.

International
Auditing Highlights

AUDITOR
OVERSIGHT

July 12: U.K.
companies and their investors could gain greater insight into the roles of
company audit committees and how the committees’ work can be improved under a
new U.K. Financial Reporting Council (FRC) project. FRC has launched a pilot
project designed to explore how audit committees can increase investors’
confidence in audits.

INTERNATIONAL
DEVELOPMENTS

July 14: Large
U.K. and Irish companies whose financial statements must be audited have fewer
choices than in recent years in selecting an auditor, a study by the U.K. FRC
has found. The number of registered audit firms in the U.K. and the Republic of
Ireland (ROI) that are authorized to conduct statutory audits—those required by
a government agency—continues to drop.

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